A contractor earning £500 a day can still be offered less than a salaried applicant on half the income. That is usually not because the numbers do not work. It is because the lender has assessed them the wrong way. If you have ever wondered how do lenders assess contractor income, the answer is that it depends heavily on the lender, the underwriter and how your case is presented.
That matters because contractor income is rarely straightforward on paper. You might be on a fixed-term contract, paid through PAYE by an umbrella company, working under CIS, or drawing a small salary and dividends from a limited company. Mainstream lenders often try to force those income types into salaried rules. Specialist lenders do not. That difference can have a major impact on how much you can borrow and how quickly you get approved.
How do lenders assess contractor income in practice?
Most lenders start with one basic question: is your income sustainable enough to support the mortgage? The challenge for contractors is that sustainable does not always look conventional. A permanent employee shows a basic salary and perhaps a bonus. A contractor may show a day rate, a current contract, previous contracts, company accounts, payslips, dividends or CIS statements.
Some lenders use employed-style underwriting, especially if you are paid via PAYE. Others use self-employed criteria if you trade through your own limited company. The more contractor-friendly lenders take a more commercial view. Instead of focusing on the structure alone, they look at what you actually earn, how long you have been contracting, whether there is continuity of work and how likely it is that your income will continue.
That is why two lenders can look at the same applicant and produce very different outcomes. One may assess only salary plus dividends from the latest accounts. Another may use your contract rate to support a far higher borrowing figure.
Day rate contractors are often assessed on annualised income
For IT contractors and other professionals working on a day rate, specialist lenders often calculate income by annualising the contract value. A common method is day rate multiplied by 5 days and then by 46 or 48 weeks. That allows for gaps between contracts, bank holidays and time off.
So if you earn £500 a day, a lender may assess your income at £115,000 using 46 weeks, or £120,000 using 48 weeks. That can be far more generous than using your salary and dividends if you operate tax efficiently through a limited company.
This is where mainstream criteria often fall short. If a lender ignores your contract income and looks only at a low director’s salary plus modest dividends, your affordability can be capped well below what your real earnings support. You should not have to pay more tax just to satisfy the wrong lender.
The trade-off is that not every lender uses day rate underwriting. Some want a minimum contract value, a set period of contracting history or evidence of the next contract if the current one is close to ending. The right approach depends on your profile, not just your income.
What lenders usually want to see for day rate cases
A current contract is the starting point. Lenders will usually want to see the contract term, your day rate, your role and confirmation of how you are paid. They may also ask for recent bank statements to evidence income landing regularly, plus a CV or work history if you have moved between contracts.
If you are new to contracting, some lenders will still consider the case, especially if you have a strong track record in the same sector. A contractor who moved from permanent employment into a similar role can be viewed very differently from someone entering a brand new line of work.
Fixed-term contractors are judged on continuity, not just the contract end date
Many applicants worry that a fixed-term contract will automatically count against them. In reality, lenders are usually more concerned with continuity of employment and future prospects than the simple fact that the contract has an end date.
If you have renewed contracts, worked in the same field for several years or can show a pattern of rolling assignments, that helps build the case that your income is reliable. A contract ending in a few months is not always a problem if there is a strong history behind it or a realistic expectation of renewal.
This is one area where context matters. An underwriter who understands the contractor market knows that fixed-term work is normal in many sectors. An underwriter using only standard employed criteria may see an expiry date and treat the income as unstable. Good packaging makes a big difference here.
CIS workers are often assessed differently again
CIS workers sit in a category of their own. Some lenders treat CIS applicants almost like employed borrowers if the payslips and deductions are clear. Others treat them more like self-employed applicants and want a longer view of income.
The stronger CIS lenders often use recent gross income shown on CIS payslips or monthly statements, rather than relying solely on full accounts or SA302s. That can be helpful if your taxable income does not reflect your true earning capacity or if your most recent year has been stronger than earlier periods.
Consistency still matters. Lenders will look at whether your earnings are stable, whether there are large fluctuations and whether your bank statements support the figures being declared. If income varies seasonally or due to site changes, that does not automatically mean decline, but it does need explaining properly.
Limited company directors face the biggest gap between mainstream and specialist lending
If you run your own limited company, the biggest issue is usually how income is defined. Many high street lenders will assess affordability using salary plus dividends only. That can be restrictive if you deliberately retain profit within the business.
Specialist lenders may assess salary plus dividends plus retained profit, or they may use your contract value if you are effectively operating as a professional contractor through a personal service company. This can transform the borrowing outcome.
For example, a director taking £12,570 salary and £30,000 dividends may look like a £42,570 earner to one lender. Another lender may recognise much higher net profit or contract-based income and assess affordability far more accurately. That is often the difference between settling for a smaller mortgage and buying the property you actually want.
Why accounts are not always the full story
Accounts matter, but they are not always the best measure of current affordability. They are historic by nature. If your latest contract has increased your income significantly, or you have built retained profit while keeping personal drawings low for tax reasons, old-style underwriting can understate what you earn.
That does not mean lenders ignore evidence. It means the best lenders use the right evidence for the right applicant. Sometimes that is two years’ accounts. Sometimes it is the latest contract, recent business bank statements and an accountant’s reference. The key is matching your case to a lender whose policy fits your reality.
What else lenders look at beyond income
Income is only one part of the decision. Lenders also assess your credit profile, deposit size, existing commitments and overall affordability. A strong contractor income can still be reduced by large credit balances, car finance, school fees or high childcare costs.
They will also check the property itself, especially if you are buying a flat, new build or non-standard construction home. Even with excellent earnings, the wrong property or weak credit history can narrow your options.
That said, contractor applicants often assume the income side will be the hardest part. In many cases, once your income is assessed properly, the rest of the application looks surprisingly straightforward.
Why the lender choice matters so much
When people ask how do lenders assess contractor income, the honest answer is that there is no single rulebook. There are broad patterns, but lender policy varies significantly. Some are contractor-friendly. Some are not. Some will lend well on one income structure and poorly on another.
That is why choosing the lender first and hoping for the best is risky. The better route is to understand how your income can be presented most strongly, then approach lenders whose underwriting is built for that profile. That often leads to a larger borrowing amount, fewer unnecessary documents and a faster path to offer.
For contractors, speed matters as much as headline rates. If you are up against a purchase deadline or remortgaging before your current deal ends, wasting time with the wrong lender can cost more than a slightly higher rate ever would.
The best applications make the underwriter’s job easy
A strong contractor mortgage case is not about flooding the lender with paperwork. It is about giving the underwriter the right evidence in the right format with the right explanation. Current contract, proof of continuity, bank statements, accounts where relevant, and a clear narrative about how you work.
That is where specialist broker support can make a real difference. Firms such as The Residential Mortgage Hub work with lenders and underwriters who understand contractor income properly, rather than trying to squeeze it into outdated employed or self-employed boxes.
If your income is strong but your paperwork looks unconventional, that does not mean your mortgage options are limited. It usually means the case needs to be placed better. The right lender will not ask you to restructure your income or sacrifice tax efficiency just to fit a standard form. They will assess what you actually earn and lend accordingly.
If you are contracting successfully, your mortgage should reflect that. The trick is making sure the lender sees the same picture you live every month.
